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    RBI Monetary Policy Review

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    Angel Broking
    The Reserve Bank of India reduced the repo rate by 25 basis points to 7.25% in line with expectations. While acknowledging lower inflation going forward, RBI remained cautious about risks to growth from high capital flows and a precarious current account deficit. RBI expects GDP growth of 5.7% in fiscal 2014 and credit growth of 15% alongside deposit growth of 14%. The policy aims to support economic growth while addressing risks to inflation from supply constraints and fuel price adjustments.

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    RBI Monetary Policy Review

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    Angel Broking
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    The Reserve Bank of India reduced the repo rate by 25 basis points to 7.25% in line with expectations. While acknowledging lower inflation going forward, RBI remained cautious about risks to growth from high capital flows and a precarious current account deficit. RBI expects GDP growth of 5.7% in fiscal 2014 and credit growth of 15% alongside deposit growth of 14%. The policy aims to support economic growth while addressing risks to inflation from supply constraints and fuel price adjustments.

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    6th May, 2013

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    The Reserve Bank of India reduced the repo rate by 25 basis points to 7.25% in line with expectations. While acknowledging lower inflation going forward, RBI remained cautious about risks to growth from high capital flows and a precarious current account deficit. RBI expects GDP growth of 5.7% in fiscal 2014 and credit growth of 15% alongside deposit growth of 14%. The policy aims to support economic growth while addressing risks to inflation from supply constraints and fuel price adjustments.

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    Download as PDF, TXT or read online from Scribd
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    57 views4 pages

    RBI Monetary Policy Review

    Uploaded by

    Angel Broking
    The Reserve Bank of India reduced the repo rate by 25 basis points to 7.25% in line with expectations. While acknowledging lower inflation going forward, RBI remained cautious about risks to growth from high capital flows and a precarious current account deficit. RBI expects GDP growth of 5.7% in fiscal 2014 and credit growth of 15% alongside deposit growth of 14%. The policy aims to support economic growth while addressing risks to inflation from supply constraints and fuel price adjustments.

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    Monetary Policy Review | Banking

    May 3, 2013

    Monetary Policy Review


    RBI reduces repo rate by 25bp on expected lines
    Policy Measures

    Vaibhav Agrawal
    022 3935 7800 Ext: 6808 [email protected]

    Bhupali Gursale
    022-3935 7800 Ext: 6820 [email protected]

    The Reserve Bank of India (RBI) in its Monetary Policy Review delivered on expected lines and reduced the Repo Rate by 25bp from 7.50% to 7.25%. Consequently, the Reverse Repo Rate stands adjusted to 6.25% and the Marginal Standing Facility Rate and Bank Rate stand adjusted to 8.25%. The Cash Reserve Ratio remains unchanged at 4.00% of banks NDTL. RBI maintained a cautious stance and indicated that there is a little space for further monetary easing. While it acknowledged lower inflation trajectory going ahead, it expressed caution with respect to the Capital flows and the CAD, and as a result, mentioned only limited headroom for further monetary easing. In line with this, we expect another one or two rate cuts going ahead, while positive surprise in forthcoming inflation readings, may provide further headroom.

    Policy addresses accentuated risks to growth


    As per the RBI, the two main considerations behind the continuance of the growthsupportive monetary policy were 1) the recent deceleration in economic activity along with the expectations of gradual and modest economic recovery from here on and 2) the recent gradual moderation in WPI inflation (particularly ebbing of core inflation). Real GDP growth has slowed much more than expected (at 4.5% during 3QFY2013, the lowest in 15 quarters). The economic recovery from here on is likely to be gradual and modest and as per the RBI, GDP in FY2014 is likely to grow by 5.7%. RBI projects banking system credit to grow by 15% and deposits by 14% in FY2014.

    However, stance remains cautionary


    Notwithstanding, the recent correction in the international commodity prices (incl. gold, crude etc.), the RBI expressed caution considering 1) the need to keep differential with the global interest rates high, so as to keep attracting capital flows to finance the precarious current account deficit, 2) the near-term upside risks to inflationary expectations, stemming from supply-side bottlenecks, elevated food inflation and the ongoing correction in administered fuel prices, and 3) the elevated CPI inflation levels.

    Exhibit 1: Moderation in inflation as core recedes


    (%) 10.0 8.0 6.0 6.0 4.0 2.0 3.4 Core Inflation WPI Inflation

    Exhibit 2: CAD at record high level of 6.7% of GDP


    (USD bn) 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 (% ) 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0

    1Q09

    2Q09

    3Q09

    4Q09

    1Q10

    2Q10

    3Q10

    4Q10

    1Q11

    2Q11

    3Q11

    4Q11

    1Q12

    2Q12

    3Q12

    4Q12

    1Q13

    2Q13

    Dec-11

    Aug-12

    Dec-12

    Jan-12

    Jun-12

    Mar-12

    Jan-13

    Nov-11

    Nov-12

    May-12

    Mar-13

    Oct-11

    Apr-12

    Feb-12

    Oct-12

    Sep-11

    Sep-12

    Feb-13

    Jul-12

    Current account deficit

    Current account deficit/GDP (RHS)

    Source: Office of Economic Adviser, Angel Research

    Source: RBI, Angel Research

    Please refer to important disclosures at the end of this report

    3Q13

    Monetary Policy Review

    Exhibit 3: Crude prices have declined recently


    130 125 120 115 110 105 100 95 90 85

    Exhibit 4: Gold prices too have corrected recently


    (USD/Oz) 1900 1800 1700 1600 1500 1400 1300
    Aug-12 Dec-12 Apr-13 Nov-12 May-12 May-12 Nov-12 Mar-13 Oct-12 Sep-12 Sep-12 Feb-13 Apr-13 Jul-12 Jun-12 Jul-12 Jan-13 Jan-13

    (US $ /barrel)

    May-12

    Sep-12

    Aug-12

    Dec-12

    Feb-13

    Jun-12

    Jul-12

    Jan-13

    Mar-13

    Source: Bloomberg, Angel Research

    Nov-12

    Oct-12

    Apr-13

    Source: Bloomberg, Angel Research

    Exhibit 5: Downtrend in real GDP growth


    (%) 12.0 10.0 8.0 6.0 4.0 2.0 0.0 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 5.8 3.5 5.7 9.8 8.5 9.0 7.5 11.2 9.7 8.9 9.3 9.2 7.5 6.5 6.0 Real GDP

    Exhibit 6: Divergence between WPI and CPI inflation


    (%) 12.0 11.0 10.0 10.4 WPI Inflation CPI inflation

    5.3 5.5 5.3

    9.0

    4.5

    8.0 7.0 6.0 5.0 6.0

    May-12

    Sep-12

    Dec-12

    Aug-12

    Mar-12

    Feb-13

    Jun-12

    Jul-12

    Apr-12

    Jan-13

    Source: CSO, Angel Research

    Source: Office of Economic Adviser, RBI, Angel Research

    Exhibit 7: Easing of key policy rates


    (%) 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 4.00 6.25 7.25 Repo rate Reverse Repo rate CRR

    Exhibit 8: Credit and deposit growth - trends


    (%) 24.0 22.0 20.0 18.0 16.0 14.0 12.0 10.0

    Credit growth

    Deposit growth

    Dec-11

    Nov-12

    Aug-11

    Aug-12

    Dec-12

    Jun-11

    Jan-07

    Jan-08

    Jan-09

    Jan-10

    Jan-11

    Jan-12

    Jan-13

    Apr-12

    Jun-12

    Oct-11

    Feb-12

    Oct-12

    Sep-06

    Sep-07

    Sep-08

    Sep-09

    Sep-10

    Sep-11

    May-06

    May-07

    May-08

    Sep-12

    Source: RBI, Angel Research

    May-13

    May-09

    May-10

    May-11

    May-12

    Source: RBI, Angel Research

    May 3, 2013

    Feb-13

    Apr-13

    Mar-13

    Oct-12

    Monetary Policy Review

    Research Team Tel: 022 - 39357800

    E-mail: [email protected]

    Website: www.angelbroking.com

    DISCLAIMER
    This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

    May 3, 2013

    Monetary Policy Review

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    Research Team Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Bhavesh Chauhan Viral Shah Sharan Lillaney V Srinivasan Yaresh Kothari Ankita Somani Sourabh Taparia Bhupali Gursale Vinay Rachh Amit Patil Shareen Batatawala Twinkle Gosar Tejashwini Kumari Technicals: Shardul Kulkarni Sameet Chavan Sacchitanand Uttekar Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Hiten Sampat Meenakshi Chavan Gaurang Tisani Akshay Shah Production Team: Tejas Vahalia Dilip Patel Research Editor Production Incharge [email protected] [email protected] VP - Institutional Sales Sr. A.V.P- Institution sales Dealer Dealer Sr. Executive [email protected] [email protected] [email protected] [email protected] [email protected] Head - Derivatives [email protected] Sr. Technical Analyst Technical Analyst Technical Analyst [email protected] [email protected] [email protected] VP-Research, Pharmaceutical VP-Research, Banking Sr. Analyst (Metals & Mining) Sr. Analyst (Infrastructure) Analyst (Mid-cap) Analyst (Cement, FMCG) Analyst (Automobile) Analyst (IT, Telecom) Analyst (Banking) Economist Research Associate Research Associate Research Associate Research Associate Research Associate [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

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    May 3, 2013

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